I have been an independent investor and trader in the Forex, Stock Market, and Commodity markets for 10 years. I also serve as the managing director of a charitable fund. Follow me on Twitter @spollack10

Over the past year, as shown by the chart below, shares of Union Pacific Corp (NYSE:UNP) have significantly outperformed rivals CSX Crop (NYSE:CSX) and Norfolk Southern Corp (NYSE:NSC). There are three reasons why CSX or NSC is a better buy than UNP.

Valuation

As shown by the charts below, based on both PE ratios and price/book valuation, UNP is more expensive than both CSX and NSC. Due to this, CSX and NSC have, in my opinion, more room to run compared to UNP. Additionally, given the significant difference in valuations, I expect some value driven money to rotate out of UNP and into CSX and NSC.

Dividend Yield

As shown by the chart below, both CSX and NSC have higher dividend yields than UNP. While the difference may not seem like much, just 0.70% in the case of CSX vs UNP, in today's low rate environment this is a somewhat significant difference. For example, right now, investors looking to pick up an additional, risk free, 0.70% yield on their money would be forced to move from short-term 3 month T-bill all the way out to a 5 year note. In the world of fixed income this is a significant difference. In conclusion, while it does not seem like much, the difference in yield between UNP and CSX or NSC is significant enough to matter.

Coal Rally

One of the reasons why UNP has outperfomred CSX and NSC has to do with coal exposure. While UNP does have significant coal exposure, it has less exposure to coal than does CSX or NSC. Low natural gas prices have led a shift in demand from coal to natural gas which is a headwind for all railroads. Given this, it makes sense that UNP has outperformed CSX and NSC. However, more recently, shares of major coal producers have shown some strength but CSX and NSC are yet to respond. This could soon change leading to a move higher in CSX and NSC.

Conclusion

Given the current environment and valuations, as discussed above, I prefer CSX and NSC to UNP. This view would change given either changes in relative valuation (i.e. UNP shares move lower brining valuations more into line with CSX and NSC or CSX and NSC move higher making them more expensive) or a move lower in the recently bullish coal trade.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Despite the surge higher in the broader indices on Friday, shares of MGIC Investment Corp (NYSE:MTG) fell by more than 17%. This decline comes after MTG fell by more than 64% during the previous trading session as the company said it may no longer be able to write new insurance. However, with the stock trading at just 72 cents as I write this, it should be noted that the company has not filed bankruptcy.

Oversold: MTG is very oversold at this point and the lack of a bankruptcy filing could be enough to send shares higher.

Capital Injection: It is possible, but unlikely, that MTG finds a way to raise capital. A possible capital injection could come from companies that specialize in investing in distressed situations.

Special Approval: It is possible that MTG receives special approval to continue writing insurance in some states.

Asset Sale: MTG could look to sell a portion of its insurance book to another company in an effort to raise capital.

Short Covering: With a short interest of more than 18%, it is possible that short sellers decide to take profits in MTG.

Any of the aforementioned actions should lead to at least a temporary rally in MTG.

How To Play It

I would only speculate on MTG using options because the risk remains high that the stock falls further. As I write this, the August $1 MTG calls are trading for 5 cents. If anything positive happens, these call options would likely be worth much more than 5 cents. However, if nothing good happens for MTG, and the stock continues lower, the buyer of the call options will simply lose the 5 cent premium paid.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The snack business is growing faster and has greater appeal internationally. Pringles, known for its signature canned potato snacks, is in 140 countries and offers the potential for increased scale in Europe and a good entry point into snacking in Asia and Latin America.

While Pringles had lower margins than other Kellogg businesses, the company had demonstrated a good track record of improving the operations of its acquisitions.

The Pringles deal will help to further diversify the company away from the slower growing cereal business, which K has depended on for most of its profits in the past. Pringles along with Keebler and Cheez-It gives K a solid foothold in the snack business for the future.

K has proved adroit at handling big deals in the past. Here is a case study on the success of the Keebler acquisition. Similar to when K announced the acquisition of Keebler, investors are not excited about the prospects of the Pringles deal. However, the Pringles deal will likely produce long-term value for shareholders like the Keebler deal did.

Overseas exposure

The Pringles deal will nearly triple K's overseas business. Having more exposure overseas is good for two reasons. Firstly, overseas markets are growing faster than the U.S. market. Secondly, an increased reliance on overseas sales means that K could benefit from a weaker dollar.

U.S. Dollar Index 10-year chart

Source: CNBC

The long-term trend of a weak dollar will help K grow earnings from its international business in the future. As mentioned above, the Pringles deal will nearly triple K's overseas business.

Immediate earnings boost

K expects Pringles will add between 8 and 10 cents per share to 2012 earnings. Stronger earnings numbers will make K more appealing to growth investors.

Valuation

K trades at 14 times forward earnings. K is not a cheap stock, but it is not an expensive stock either. Companies in the food industry tend to trade at higher multiplies because their business is more stable. GIS trades at 14 times forward earnings, KFT trades at 15.2 times forward earnings, and HSY trades at 17.6 times forward earnings.

Dividend

K currently pays a dividend of 3.27%. The payout ratio is currently 50%. This relatively low payout ratio means that K will be able to maintain the dividend while it is uses the rest of earnings to pay off debt.

Conclusion

K's acquisition of Pringles will help K grow its international business and snack business. The Pringles deal will provide a catalyst for investors to buy K.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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